Year-over-year air cargo growth lower in 2018

The International Air Transport Association (IATA) said this week that demand for air cargo transport last year grew 3.5 percent (as measured in freight tonne kilometers or FTKs), much lower than the 9.7 percent seen in 2017. Though demand softened late in the year, with demand in December actually 0.5 percent lower than in December 2017, the airline organization is forecasting growth in demand of about 3.7 percent this year. “Air cargo demand lost momentum towards the end of 2018 in the face of weakening global trade, sagging consumer confidence and geopolitical headwinds,” said Alexandre de Juniac, IATA’s director general and chief executive officer. “We are cautiously optimistic that demand will grow in the region of 3.7 percent in 2019. But with the persistence of trade tensions and protectionist actions by some governments, there is significant downside risk. Keeping borders open to people and to trade is critical.” IATA said, “International e-commerce grew in 2018, which was a positive factor for the year. Yet, there was a softening of several key demand drivers: • The restocking cycle, during which businesses rapidly built up inventories to meet demand, ended in early 2018;

• Global economic activity weakened; • The export orderbooks of all major exporting nations, with the exception of the U.S., contracted in the second half of 2018; • Consumer confidence weakened compared to very high levels at the beginning of 2018.” Capacity is outstripping demand, said IATA, rising 5.4 percent in 2018 as measured in available FTKs. IATA measures regional growth by looking at the parts of the world where each of its 290-member airlines are based. Examined in this way, it said, “North American airlines posted the fastest growth of any region for the seventh-consecutive month in December 2018, with an increase in demand of 2.9 percent compared to the same period a year earlier. Capacity increased by 4.5 percent. This contributed to an annual growth in demand in 2018 of 6.8 percent, matching the rate of capacity increase. The strength of the U.S. economy and consumer spending have helped support the demand for air cargo over the past year, benefiting U.S. carriers.”

In contrast, it said, “Asia-Pacific carriers posted the weakest growth of any region in December 2018, with a decrease in demand of 4.5 percent compared to the same period a year earlier. Capacity increased by 2.6 percent. The weaker performance in December contributed to growth in freight demand of only 1.7 percent in 2018 compared to 2017. Annual capacity increased 5 percent. The weaker performance of Asia-Pacific carriers in 2018 largely reflects a slowing in demand for exports from the region’s major exporters (China, Japan and Korea). Signs of a moderation in economic activity in China and an escalation of trade tensions continue to pose a downside risk to air cargo in Asia-Pacific.” De Juniac said, “To attract demand in new market segments, the air cargo industry must improve its value proposition. Enabling modern processes with digitalization will help build a stronger foothold in e-commerce and the transport of time- and temperature-sensitive goods such as pharmaceuticals and perishables.” The forwarding company Flexport said this week in its weekly Freight Market Update that air freight rates out of China, including Hong Kong, had increased with the approach of Chinese New Year. It said shipments out of China might see a one- or two-week delay before departure, but no backlogs were foreseen in Hong Kong. From India and Southeast Asia, it said there is tightness or rising rates in some markets. Statistics from the U.S. Census Bureau’s USA Trade Online database show that in the first 11 months of 2018, air imports to the U.S. totaled 4.55 million metric tons, a 5.3 percent increase over the same period the prior year. Air exports totaled 3.2 million metric tons, up 6.1 percent. The amount of U.S. trade that moves by air as opposed to that which moves by ship is tiny when measured by weight. For example, the weight of containership imports is 36 times that of air imports, and imports by vessels of all sorts, including everything from containerships and bulkers to tankers and roll-on, roll-off carriers, are 134 times greater. With exports, the story is similar—containership exports are 39 times those that move by air and for all ships, exports are 225 times that which move by air.

But when it comes to the value of the merchandise transported, air cargo punches above its weight. In the January issue of the Pacific Merchant Shipping Association’s West Coast Trade Report, Sacramento, Calif., economist Jock O’Connell discussed both sea and air freight, noting that while “various facets of the maritime supply chains do have an enormous physical presence and employ legions of workers,” there is another side of the story: When the value of the merchandise transported by air is examined, “the value of the goods transported in maritime containers is much less imposing than one might conclude from what we read in the papers or see on TV.” O’Connell did his calculations using the Census Bureau’s stats for the first 10 months of the year, but the story is similar for the first 11 months of the year. Those stats were released earlier this week. Of the $2.3 trillion worth of goods imported into the U.S. in the first 11 months of 2018, 26.1 percent moved by air, 32.1 percent in containers, 14.1 percent in non-containerized vessels and 27.7 percent by other means such as road, rail and pipeline to nearby countries like Canada and Mexico. With the $1.53 billion of exports, 29.6 percent moved by air, 17.4 percent in containers, 17.7 percent in non-containerized vessels and 35.3 percent by road, rail or pipeline. The high value of air cargo exports “shouldn’t be surprising given the generally high-value, time-sensitive nature of what’s transported by air,” said O’Connell. He quipped, “It’s wise to remember that diamonds come in small boxes” and noted that “in a high-tech economy like the San Francisco Bay Area, the great majority of the region’s exports depart through San Francisco International Airport. In 2017, SFO handled $29.13 billion in export shipments, as opposed to the $15.77 billion worth of containerized goods that sailed from the Port of Oakland.”

We believe that the [container] industry’s supply-demand balance will benefit from a reduced appetite for ultra-large container vessels among the major carriers, some of which now have their eyes fixed on a bigger prize of becoming global logistics integrators.

Simon Heaney, Drewry senior manager of container research

CMA CGM - Guyanas Caribbean has replaced the vessel Contship Pro with the Nadja, which has reduced the total capacity by 426 TEUs or 13 percent.